Neutral Sentiment Jumps to a One-Month High

Posted on September 26, 2013 | AAII Survey

Neutral sentiment jumped to its highest level in a month, according to the according to the latest AAII Sentiment Survey, as large-cap stock prices fell for five consecutive days.

Bullish sentiment, expectations that stock prices will rise over the next six months, plunged by 9.1 percentage points to 36.1%. This is a three-week low. It is also the sixth time in the past nine weeks optimism is below its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged, rebounded by 8.1 percentage points to 33.3%. This is ends a four-week skid and puts neutral sentiment back above its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, edged 0.9 percentage points upward to 30.6%. The historical average is 30.5%.

At current levels, all three sentiment indicators are well within their typical historical ranges.

The drop in bullish sentiment and the increase in neutral sentiment occurred as both the Dow Jones industrial average and the S&P 500 fell during all five trading days of the survey’s period. The fiscal standoff in Congress likely didn’t help optimism either, though it did not necessarily cause individual investors to be bearish. Rather, the market’s rally this year, corporate earnings and economic growth are playing bigger roles in influencing sentiment. This said, several AAII members have previously expressed their frustration with Washington politics.

This week’s special question asked AAII members if they agree or disagree with the Federal Reserve Open Market Committee’s decision to leave its bond buying program unchanged. Approximately 51% of respondents disagreed with the decision while 36% agreed with it. Those who disagreed said it is time to raise rates or are concerned about the future impact on inflation and the U.S. dollar if the monetary stimulus continues. Those who agreed thought the economy is not yet strong enough to raise interest rates. Some respondents who agreed with the Fed’s decision thought the bond purchases should start to be tapered sooner than later.

Here is a sampling of the responses:

  • “I disagree. The Fed is waiting too long to get its monetary policy back to normal. They won’t be able to turn it off when it’s too late.”
  • “I think it is time to take the training wheels off. The longer this problem lasts, the harder it will be to end it.”
  • “Continuing on the present course will eventually result in stagflation and an ever declining economy.”
  • “I agree because the economy needs to show more signs it will be able to stand on its own before the Fed cuts back.”
  • “Agree. The economy is not strong enough for the Fed to stop purchasing bonds.”

This week’s AAII Sentiment Survey results:

  • Bullish: 36.1%, down 9.1 percentage points
  • Neutral: 33.3%, up 8.1 percentage points
  • Bearish: 30.6%, up 0.9 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 30.5%
  • Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.) The survey and its results are available online at: http://www.aaii.com/sentimentsurvey